April 19th 2017

Philadelphia Business Journal

Categorized As:

How changes to H-1B visas could impact Philadelphia's tech scene

April 19, 2017

Michelle Caffrey, Reporter, Philadelphia Business Journal

A significant roll back of the U.S. H-1B visa program could deal a blow to Philadelphia’s growing tech ecosystem, experts and industry players said this week in reaction to the executive order President Donald Trump signed Tuesday targeting the program.

Some who spoke to the Philadelphia Business Journal expressed serious concerns about the region’s vulnerability to the negative effects a limitation of H-1B visas could have on the tech industry. But the worry doesn’t run across the board, as some employers said they don't expect alterations in the program to have a major impact.

Local demand

The H-1B program is designed to allow skilled foreign-born residents to temporarily work in the U.S. and distributes the visas via a lottery. Trump and other critics of the program allege it’s being abused by large consulting and outsourcing firms that layoff citizens to hire lesser-skilled foreign workers at a lower wage. The executive order signed Tuesday doesn’t make changes to the program outright. Instead it requires a federal interdepartmental review of the H-1B program with the intention of fueling potential alterations the Republican-controlled Congress or individual departments could implement through legislation or regulation.

Trump has indicated changes could include prioritizing higher-paid or more highly educated workers as an alternative to the current lottery system. Supporters acknowledge the program is flawed but argue the order is a politically motivated ploy that will make it harder, especially for tech companies, to fill positions they already have a difficult time hiring for and would wind up stymying innovation and the economy.

The Greater Philadelphia region has a significant stake in the program. New Jersey and Pennsylvania both ranked in the top ten states for H-1B visa application certifications, which are required to be entered into the visa lottery. New Jersey was fourth with 78,034 certifications in 2016, and Pennsylvania was fifth with 75,950, according to U.S. Department of Labor statistics. The federal government caps the number of H-1B visas issued annually nationwide at 85,000, which includes 20,000 spots saved for an advanced degree exemption.

In Philadelphia, the visas are in demand. According to Myvisajobs.com, which gathers statistics about visa petitions and job openings, the top 10 employers in the city that filed the most labor condition applications, or LCAs, for an H-1B visa submitted a total of 3,254 in 2016. The bulk of those LCAs came from Deloitte Consulting, which filed 1,777, followed by the Trustees of The University of Pennsylvania with 370. Infosys — an India-based global IT consulting firm that was one of a handful of consulting companies singled out by Trump as misusing the program — ranked third in Philadelphia with 197 LCAs. Universities, consulting firms, and companies in the IT or life sciences field made up the majority of the top 100 applicants.

Local impact

The Philadelphia region would feel the impact of a scale back in H-1B visas more than other cities, University City Science Center CEO Steve Tang said.

“I would acknowledge that the H-1B program isn’t perfect, but having said that, there is a tremendous benefit to the program, particularly to startup companies and to students who are transitioning from a student visa. Because Philadelphia’s economy thrives on higher education and increasingly more so on the tech scene, I think it will have real consequences to workforce development here,” Tang said.

The executive order itself doesn’t have real teeth, but Tang said just the perception of a crack down on the visas and Trump's clear intention to change the program are enough to scare risk-conscious companies.

“This creates unpredictability in the system, and the most vulnerable employers are those with very little staff,” Tang said. “It needs to be better thought out and I hope Congress gets involved and clarifies. It’s not a secret that countries like Canada are actively recruiting tech workers from the U.S.”

Cities with tech ecosystems anchored by large companies, like Microsoft in Seattle for example, could potentially better absorb the impact of a H-1B visa reduction, while Philadelphia’s economy, which is more reliant on small and mid-sized businesses, could suffer more, Tang said.

“What’s lost in the noise here is that this will hurt small businesses and startups,” he said.

Startups weigh in

That includes companies like Borderwise, a Philadelphia-based startup that’s designed an online platform to simplify the green card and naturalization application processes for both immigrants and immigration lawyers. Co-founder James Pittmann, an immigration lawyer and expert on H-1B visas, said the startup sees this issue from an employer standpoint. One of its key full-time developers is allowed to work for them based on her husband’s H-1B. If it was revoked, Borderwise would be put “into a tailspin,” Pittman said.

“We’re still in the process of building out our platform, we’d basically have to drop everything to replace her,” Pittman said. “It would cause the engineering pipeline to grind to a halt.”

He agrees that issues with the H-1B program need fixing, and suggested a possible solution would be creating a new subcategory for specific positions like high-level IT work instead of lumping all specialty work in one category. There’s also room to find out if people on an H-1B visa are being paid fairly, he said, but he’s concerned the executive order will lead to a reduction in H-1Bs all together.

“I think politically, this administration would like to say it cut the numbers,” he said.

Even an increase in the required salary range to receive an H-1B could have negative ripple effects on local startups or medium-sized businesses, which might struggle to find the capital to compete with firms that can offer larger salaries.

That’s something Aradhya Malhotra is worried about. The co-founder of social impact tech startup Skyless Games secured his own residency through the O-1 visa for individuals with “extraordinary ability or achievement,” but he fought a battle to receive it, and is now deeply engaged in the national conversation about H-1B visas, often speaking to immigrant startup founders and students to advise them on a path to residency.

“I don’t think there’s anything wrong with the idea of [the government] going after the H-1B abuse and misuse, but at the same time they have to understand what they’re missing out on and how to make the H-1B better for people who actually deserve it, versus an extreme reaction to the abuse," he said.

Beyond startups like his, even a reduction in the H-1Bs pursued by the large consulting firms could have unintended consequences, he said.

The H-1B visas are often pursued by students who earned degrees under the F1 student visa after they graduate and receive job offers, he said. If they don’t receive the visas, the investment Philadelphia’s higher education institutions have made in students over the course of four to six years won’t go back into the local economy. It’ll go back to the students' home countries, or where they can secure visas for employment, he said. Losing those who would otherwise stay and form their own companies and create more jobs would actually do the opposite of the intention of Trump’s executive order – employing more Americans.

A differing opinion

Not every tech employer in the region is concerned, however. Bob Schena, CEO of Malvern-based Rajant, said he understands why some people are worried, but he believes the backlash is overblown.

“It’s like if tomorrow is 71 degrees and the next day it’s 70. I don’t think anyone’s going to notice,” he said. “It’s still a nice day.”

Rajant, which powers wireless network connections and infrastructure, employs about 70 and has hired a small number of workers who were already in the country on H-1B visas and had experience in a specific, sophisticated role.

The firm has been able to fill most of its high-tech roles by actively recruiting students who have excelled in STEM fields at universities that might not be the first stop for tech companies seeking the top tech talent, like public state schools.

“Over the last few years, we’ve really been fortunate to find exceptional talent in other places where you wouldn’t have initially thought to look,” he said.

Doing the numbers

While that’s worked for Rajant, Tang said the numbers don’t tell the same story.

The Economy League of Greater Philadelphia estimates tech job openings will increase a net of 2,600 to 4,400 annually over the next 10 years. In 2015 however, less than 2,600 IT-related degrees and credentials were awarded by colleges and universities in the area. Even if all of the graduates stayed in the area, they couldn’t meet demand — and it's a fact they won’t. Tang pointed to a Campus Philly estimate that the regional graduate retention rate stands at 64 percent.

“We’d need another 900 workers to meet the low end [of those projections] and up to three times as many for the high-end projections,” Tang said.

Malhotra, the co-founder of Skyless Games, summed up the upcoming workforce gap in one phrase: “The math just doesn’t add up.”